15 July 2013

Reuters: Hungary wants to repay IMF loan early and close fund's office

Hungary plans to pay back its IMF loan early and called on the fund to shut its Budapest office, in what could be a symbolic move by Prime Minister Viktor Orban's government to display its economic sovereignty.

In a letter to International Monetary Fund Managing Director Christine Lagarde, central bank chief Gyorgy Matolcsy said Hungary was considering an early repayment of outstanding sums owed on the 2008 loan.

Central Europe's most indebted nation was pulled back from the brink of bankruptcy with a €20 billion rescue package from the IMF and the European Union amid the global crisis. Shortly after taking office in 2010, Prime Minister Orban abruptly ended that programme as the government sought to control the country's financial affairs on its own. It initiated an unorthodox campaign that included Europe's highest bank tax and special levies on business.

Relations between the two sides have been tetchy since then, with Orban's populist government bolstering market confidence for about a year with the promise of a new IMF safety net, while running an anti-IMF campaign in local media.

Based on a summary by the country's debt agency, Hungary had been due to repay the equivalent of €913 million to the IMF in each of the third and fourth quarters and another €299 million in the first quarter of 2014, an election year.

Based on IMF data, Hungary's payment obligations towards the IMF total around €2.9 billion. An analyst at Citigroup, Eszter Gargyan, said the difference was due to the fact that besides the Hungarian state, the central bank also owed more than €700 million to the IMF. In the letter to the IMF, Matolcsy highlighted the pro-growth stance of the central bank, which has slashed interest rates to a record low of 4.25 per cent over the past 11 months.

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© Reuters